This is a photo of the National Register of Historic Places listing with reference number 7000063
Friday, August 3, 2012
IDAHO ENTREPRENEUR ORDED TO PAY $11.8 MILLION FOR OPERATING COMMODITY TRADING PONZI SCHEME
FROM: U.S. COMMODITY FUTURES TRADING COMMISSION
Federal Court in Idaho Orders Michael Justin Hoopes to Pay over $11.8 Million for Operating a Ponzi Scheme
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) obtained a federal court order requiring defendant Michael Justin Hoopes of Rexburg, Idaho, to pay more than $10.4 million in restitution and a civil monetary penalty of over $1.4 million for operating a Ponzi scheme that defrauded Idaho residents and others. The order also imposes permanent trading and registration bans against Hoopes and permanently prohibits him from further violations of the Commodity Exchange Act and CFTC regulations, as charged.
The consent order of permanent injunction, entered on July 26, 2012, by Judge Edward J. Lodge of the U.S. District Court for the District of Idaho, stems from a CFTC complaint filed on October 25, 2011, that charged Hoopes with solicitation fraud and misappropriation in connection with a commodity futures scheme (see CFTC Press Release 6128-11, October 26, 2011).
The order finds that from at least September 2007 to October 25, 2011, Hoopes fraudulently solicited and accepted $2,068,103 from 10 individuals, mostly Idaho residents, to trade stock index commodity futures in a commodity pool that he owned and operated called Aspen Trading, LLC. The order also finds that Hoopes solicited and accepted an additional $9.68 million from other mostly Idaho residents during the same period for various other investments, all of which was extensively commingled with Hoopes’ personal funds and funds accepted for futures trading in Aspen Trading. Hoopes misappropriated at least $151,694 of the commingled funds for his personal expenses, including car, credit card, and mortgage payments, according to the order.
Between October 2006 and May 31, 2011, Hoopes suffered net losses of over 90 percent of the $2,280,550 he traded in futures, according to the order. To conceal his losses, Hoopes paid pool participants $594,339 in purported profits in the manner of a Ponzi scheme and issued false account statements to at least one pool participant showing that the Aspen Trading account was earning monthly profits as high as 83.52 percent, with only one losing month, according to the order. In reality, however, Hoopes never opened a trading account in Aspen Trading’s name but simply altered his personal trading account statements to make it appear as though the Aspen Trading account was earning large profits from futures trading, the order finds.
The CFTC appreciates the assistance of the United States Attorney’s Office for the District of Idaho.
Federal Court in Idaho Orders Michael Justin Hoopes to Pay over $11.8 Million for Operating a Ponzi Scheme
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) obtained a federal court order requiring defendant Michael Justin Hoopes of Rexburg, Idaho, to pay more than $10.4 million in restitution and a civil monetary penalty of over $1.4 million for operating a Ponzi scheme that defrauded Idaho residents and others. The order also imposes permanent trading and registration bans against Hoopes and permanently prohibits him from further violations of the Commodity Exchange Act and CFTC regulations, as charged.
The consent order of permanent injunction, entered on July 26, 2012, by Judge Edward J. Lodge of the U.S. District Court for the District of Idaho, stems from a CFTC complaint filed on October 25, 2011, that charged Hoopes with solicitation fraud and misappropriation in connection with a commodity futures scheme (see CFTC Press Release 6128-11, October 26, 2011).
The order finds that from at least September 2007 to October 25, 2011, Hoopes fraudulently solicited and accepted $2,068,103 from 10 individuals, mostly Idaho residents, to trade stock index commodity futures in a commodity pool that he owned and operated called Aspen Trading, LLC. The order also finds that Hoopes solicited and accepted an additional $9.68 million from other mostly Idaho residents during the same period for various other investments, all of which was extensively commingled with Hoopes’ personal funds and funds accepted for futures trading in Aspen Trading. Hoopes misappropriated at least $151,694 of the commingled funds for his personal expenses, including car, credit card, and mortgage payments, according to the order.
Between October 2006 and May 31, 2011, Hoopes suffered net losses of over 90 percent of the $2,280,550 he traded in futures, according to the order. To conceal his losses, Hoopes paid pool participants $594,339 in purported profits in the manner of a Ponzi scheme and issued false account statements to at least one pool participant showing that the Aspen Trading account was earning monthly profits as high as 83.52 percent, with only one losing month, according to the order. In reality, however, Hoopes never opened a trading account in Aspen Trading’s name but simply altered his personal trading account statements to make it appear as though the Aspen Trading account was earning large profits from futures trading, the order finds.
The CFTC appreciates the assistance of the United States Attorney’s Office for the District of Idaho.
Thursday, August 2, 2012
SEC REPORT ON DISCLOSURE IN THE $3.7 MILLION MUNICIPAL SECURITIES MARKET
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., July 31, 2012
— The Securities and Exchange Commission today issued a comprehensive report with recommendations to help improve the structure of the $3.7 trillion municipal securities market and enhance the disclosures provided to investors
The report is the culmination of an extensive review of the municipal securities market that was initiated by SEC Chairman Mary L. Schapiro in mid-2010 and led by SEC Commissioner Elisse B. Walter. The recommendations address concerns raised by market participants and others in public field hearings and meetings with Commissioner Walter and SEC staff as well as the public comment process during the agency’s review of the municipal securities market.
"The municipal securities market is the bedrock for funding of local government projects throughout our country. It is essential that the market work well and that investors have confidence in it," said Chairman Schapiro. "While we have put in place measures to help investors make more knowledgeable decisions about municipal securities, we could do more for investors with statutory authority to improve disclosure and muni market practices."
Commissioner Walter said, "On behalf of my colleagues and the professional and dedicated staff at the SEC, I am pleased that the report brings into clear focus the current state of the municipal securities market and recommends potential action to address issues raised by investors, issuers, and other market participants. I look forward to moving forward with the efforts articulated in our report to further strengthen and enhance this vital market."
State and local governments issue municipal securities to finance a wide variety of projects that are critical to building and maintaining the nation’s infrastructure.
At the start of 2012, there were more than one million different municipal bonds outstanding totaling $3.7 trillion, with 75 percent held by individual "retail" investors.
Despite its size and importance, the municipal securities market has not been subject to the same level of regulation as other sectors of the U.S. capital markets due to broad exemptions under federal securities laws for municipal securities.
Without a statutory regime for municipal securities regulation, the SEC’s investor protection efforts in the municipal securities market have been limited. The SEC’s report discusses potential legislative changes that could help improve disclosures to investors. For instance, the report recommends that Congress consider authorizing the SEC to set baseline disclosure standards and require municipal issuers to have audited financial statements.
Other potential legislative changes recommended in the report to help improve disclosures and practices in the municipal securities market include:
Eliminating the availability of Securities Act and Exchange Act exemptions for conduit borrowers who are not municipal entities.
Authorizing the Commission to establish the form and content of financial statements for municipal issuers who issue municipal securities, and to recognize a designated private-sector body as the standard setter for generally accepted for federal securities law purposes.
Providing a safe harbor from private liability for forward-looking statements of repeat municipal issuers that satisfy certain conditions.
Permitting the Internal Revenue Service to share information with the SEC that it obtains from returns, audits, and examinations related to municipal securities offerings, particularly in instances of suspected securities fraud.
Providing a mechanism, through trustees or other entities, to enforce compliance with continuing disclosure agreements and other obligations of municipal issuers to protect municipal securities bondholders.
In addition to potential legislation, the SEC’s report identifies potential rulemaking by the Commission or the Municipal Securities Rulemaking Board and enhancement of best practices by the municipal securities industry.
The SEC’s report discusses several disclosure issues including the timing and content of financial information, disclosures relating to pension and other post-employment benefit plans, derivatives use by issuers and obligated persons, and conflicts of interest including pay-to-play practices. The report also reviews the current structure of the municipal securities market and discusses potential initiatives to improve pre-trade and post-trade price transparency and support existing dealer pricing obligations.
The report was prepared after substantial input from investors, investor advocates, market professionals, and representatives of municipal issuers – including those who participated in the SEC’s field hearings in San Francisco, Washington D.C., and Birmingham, Ala.
The SEC already has taken steps to improve municipal securities disclosure within its limited regulatory authority. In May 2010, the Commission adopted amendments to Exchange Act Rule 15c2-12 that were aimed at improving the quality and timeliness of municipal securities disclosure. The changes were intended to help provide investors with enhanced information by further regulating those who underwrite or sell municipal securities. The measures strengthened existing requirements for the scope of securities covered, the nature of the events that issuers must disclose, and the time period in which disclosure must be made.
Washington, D.C., July 31, 2012
— The Securities and Exchange Commission today issued a comprehensive report with recommendations to help improve the structure of the $3.7 trillion municipal securities market and enhance the disclosures provided to investors
The report is the culmination of an extensive review of the municipal securities market that was initiated by SEC Chairman Mary L. Schapiro in mid-2010 and led by SEC Commissioner Elisse B. Walter. The recommendations address concerns raised by market participants and others in public field hearings and meetings with Commissioner Walter and SEC staff as well as the public comment process during the agency’s review of the municipal securities market.
"The municipal securities market is the bedrock for funding of local government projects throughout our country. It is essential that the market work well and that investors have confidence in it," said Chairman Schapiro. "While we have put in place measures to help investors make more knowledgeable decisions about municipal securities, we could do more for investors with statutory authority to improve disclosure and muni market practices."
Commissioner Walter said, "On behalf of my colleagues and the professional and dedicated staff at the SEC, I am pleased that the report brings into clear focus the current state of the municipal securities market and recommends potential action to address issues raised by investors, issuers, and other market participants. I look forward to moving forward with the efforts articulated in our report to further strengthen and enhance this vital market."
State and local governments issue municipal securities to finance a wide variety of projects that are critical to building and maintaining the nation’s infrastructure.
At the start of 2012, there were more than one million different municipal bonds outstanding totaling $3.7 trillion, with 75 percent held by individual "retail" investors.
Despite its size and importance, the municipal securities market has not been subject to the same level of regulation as other sectors of the U.S. capital markets due to broad exemptions under federal securities laws for municipal securities.
Without a statutory regime for municipal securities regulation, the SEC’s investor protection efforts in the municipal securities market have been limited. The SEC’s report discusses potential legislative changes that could help improve disclosures to investors. For instance, the report recommends that Congress consider authorizing the SEC to set baseline disclosure standards and require municipal issuers to have audited financial statements.
Other potential legislative changes recommended in the report to help improve disclosures and practices in the municipal securities market include:
Authorizing the Commission to establish the form and content of financial statements for municipal issuers who issue municipal securities, and to recognize a designated private-sector body as the standard setter for generally accepted for federal securities law purposes.
Providing a safe harbor from private liability for forward-looking statements of repeat municipal issuers that satisfy certain conditions.
Permitting the Internal Revenue Service to share information with the SEC that it obtains from returns, audits, and examinations related to municipal securities offerings, particularly in instances of suspected securities fraud.
Providing a mechanism, through trustees or other entities, to enforce compliance with continuing disclosure agreements and other obligations of municipal issuers to protect municipal securities bondholders.
In addition to potential legislation, the SEC’s report identifies potential rulemaking by the Commission or the Municipal Securities Rulemaking Board and enhancement of best practices by the municipal securities industry.
The SEC’s report discusses several disclosure issues including the timing and content of financial information, disclosures relating to pension and other post-employment benefit plans, derivatives use by issuers and obligated persons, and conflicts of interest including pay-to-play practices. The report also reviews the current structure of the municipal securities market and discusses potential initiatives to improve pre-trade and post-trade price transparency and support existing dealer pricing obligations.
The report was prepared after substantial input from investors, investor advocates, market professionals, and representatives of municipal issuers – including those who participated in the SEC’s field hearings in San Francisco, Washington D.C., and Birmingham, Ala.
The SEC already has taken steps to improve municipal securities disclosure within its limited regulatory authority. In May 2010, the Commission adopted amendments to Exchange Act Rule 15c2-12 that were aimed at improving the quality and timeliness of municipal securities disclosure. The changes were intended to help provide investors with enhanced information by further regulating those who underwrite or sell municipal securities. The measures strengthened existing requirements for the scope of securities covered, the nature of the events that issuers must disclose, and the time period in which disclosure must be made.
LOCATE PLUS HOLDINGS CORPORATION AGREES TO SETTLE SECURITIES FRAUD CHARGES
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
July 30, 2012The Securities and Exchange Commission (Commission) announced today that LocatePlus Holdings Corporation (LocatePlus) has agreed to settle charges it engaged in securities fraud from 2005 through 2007 by misleading investors about its funding and revenue in violation of the antifraud and reporting provisions of the federal securities laws. As part of the settlement, LocatePlus consented to an administrative order which prevents it from selling its securities in the public market.
Without admitting or denying the Commission's allegations, LocatePlus consented to the entry of a final judgment enjoining it from further violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a),13(b)(2)(A), 13(b)(2)(B), of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. The proposed judgment, which is subject to court approval, will not impose monetary relief against LocatePlus in light of its bankruptcy and financial condition. LocatePlus also consented to an administrative order entered today, in separate previously-instituted administrative proceedings, revoking the registration of its securities pursuant to Section 12(j) of the Exchange Act based upon its filing of certain materially deficient reports and its repeated failure to file other required periodic reports. As a result of that administrative order, LocatePlus' securities will no longer trade in the public markets.
On October 14, 2010, the Commission filed a civil enforcement action in federal district court in Massachusetts alleging that LocatePlus violated the anti-fraud and the books and records provisions of the federal securities laws. LocatePlus is a former Beverly, Massachusetts-based company that sold on-line access to public record databases for investigative searches. On November 10, 2010, the United States Attorney's Office for the District of Massachusetts unsealed an indictment against former LocatePlus chief executive officer Jon Latorella, and former LocatePlus chief financial officer James Fields, charging them with conspiracy to commit securities fraud for their roles in a scheme to fraudulently inflate revenue at LocatePlus, as well as a scheme to manipulate the stock of another company. On the same day, the Commission amended its previously-filed civil injunctive action against LocatePlus, arising out of the same conduct, to add Latorella and Fields as defendants. On June 16, 2011, LocatePlus filed a petition for protection under Chapter 11 of the U.S. Bankruptcy Code and the U.S. Bankruptcy Court for the District of Massachusetts thereafter appointed a Trustee. On June 14, 2012, Latorella was sentenced to 60 months' imprisonment in the criminal case, to be followed by three years of supervised release, and the payment of restitution to be determined at a later hearing. The Commission's civil injunctive action against Latorella and Fields is stayed until the conclusion of the criminal case, which remains pending against Fields.
July 30, 2012The Securities and Exchange Commission (Commission) announced today that LocatePlus Holdings Corporation (LocatePlus) has agreed to settle charges it engaged in securities fraud from 2005 through 2007 by misleading investors about its funding and revenue in violation of the antifraud and reporting provisions of the federal securities laws. As part of the settlement, LocatePlus consented to an administrative order which prevents it from selling its securities in the public market.
Without admitting or denying the Commission's allegations, LocatePlus consented to the entry of a final judgment enjoining it from further violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a),13(b)(2)(A), 13(b)(2)(B), of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. The proposed judgment, which is subject to court approval, will not impose monetary relief against LocatePlus in light of its bankruptcy and financial condition. LocatePlus also consented to an administrative order entered today, in separate previously-instituted administrative proceedings, revoking the registration of its securities pursuant to Section 12(j) of the Exchange Act based upon its filing of certain materially deficient reports and its repeated failure to file other required periodic reports. As a result of that administrative order, LocatePlus' securities will no longer trade in the public markets.
On October 14, 2010, the Commission filed a civil enforcement action in federal district court in Massachusetts alleging that LocatePlus violated the anti-fraud and the books and records provisions of the federal securities laws. LocatePlus is a former Beverly, Massachusetts-based company that sold on-line access to public record databases for investigative searches. On November 10, 2010, the United States Attorney's Office for the District of Massachusetts unsealed an indictment against former LocatePlus chief executive officer Jon Latorella, and former LocatePlus chief financial officer James Fields, charging them with conspiracy to commit securities fraud for their roles in a scheme to fraudulently inflate revenue at LocatePlus, as well as a scheme to manipulate the stock of another company. On the same day, the Commission amended its previously-filed civil injunctive action against LocatePlus, arising out of the same conduct, to add Latorella and Fields as defendants. On June 16, 2011, LocatePlus filed a petition for protection under Chapter 11 of the U.S. Bankruptcy Code and the U.S. Bankruptcy Court for the District of Massachusetts thereafter appointed a Trustee. On June 14, 2012, Latorella was sentenced to 60 months' imprisonment in the criminal case, to be followed by three years of supervised release, and the payment of restitution to be determined at a later hearing. The Commission's civil injunctive action against Latorella and Fields is stayed until the conclusion of the criminal case, which remains pending against Fields.
Wednesday, August 1, 2012
COMPANY CHARGED WITH USING DUMMY ASSETS
FROM: U.S. SECURITES AND EXCHANGE COMMISSION
Firm to Pay $127.5 Million to Settle ChargesWashington, D.C., July 18, 2012
— The Securities and Exchange Commission today charged the U.S. investment banking subsidiary of Japan-based Mizuho Financial Group and three former employees with misleading investors in a collateralized debt obligation (CDO) by using "dummy assets" to inflate the deal’s credit ratings. The SEC also charged the firm that served as the deal’s collateral manager and the person who was its portfolio manager.
According to the SEC’s complaint against Mizuho Securities USA Inc., the firm made approximately $10 million in structuring and marketing fees in the deal. Mizuho agreed to pay $127.5 million to settle the SEC’s charges, and the others charged also agreed to settle the SEC’s actions against them.
The SEC alleges that Mizuho structured and marketed Delphinus CDO 2007-1, a CDO that was backed by subprime bonds at a time when the housing market was showing signs of severe distress. The deal was contingent upon Mizuho obtaining credit ratings it used to market the notes to investors. When its employees realized that Delphinus could not meet one rating agency’s newly announced criteria intended to protect CDO investors from the uncertainty of ratings downgrades, they submitted to the rating firm a portfolio containing millions of dollars in dummy assets that inaccurately reflected the collateral held by Delphinus. Once the firm rated the inaccurate portfolio, Mizuho closed the transaction and sold the notes to investors using the misleading ratings. Delphinus defaulted in 2008 and eventually was liquidated in 2010. Mizuho sustained substantial losses from Delphinus.
"This case demonstrates once again that bankers and market participants who embrace a ‘get the deal done at all costs’ strategy will be identified, charged, and punished," said Robert Khuzami, Director of the SEC’s Division of Enforcement. "This is a constant theme throughout the many SEC enforcement actions arising out of the financial crisis, and is one that everyone involved in securities transactions and our financial markets would be well-advised to respect."
Kenneth Lench, Chief of the SEC’s Enforcement Division’s Structured and New Products Unit, added, "Mizuho and its employees undermined the integrity of the rating process by furnishing inaccurate information about the Delphinus portfolio. Investors expect and are entitled to receive legitimate ratings in order to help them assess their investments."
According to the SEC’s settled administrative proceedings against the three former Mizuho employees responsible for the Delphinus deal, Alexander Rekeda headed the group that structured the $1.6 billion CDO, Xavier Capdepon modeled the transaction for the rating agencies, and Gwen Snorteland was the transaction manager responsible for structuring and closing Delphinus. Delaware Asset Advisers (DAA) served as Delphinus’s collateral manager and the DAA portfolio manager was Wei (Alex) Wei.
According to the SEC’s complaint against Mizuho filed in federal court in Manhattan, all of the collateral assets for Delphinus had been purchased by July 17, 2007, and the transaction was scheduled to close on July 19. However, around noon on July 18, Standard & Poor’s (S&P) issued a press release announcing changes to its CDO rating criteria requiring certain categories of subprime residential mortgage-backed securities (RMBS) to be adjusted downward for purposes of calculating their default probability. The Mizuho employees knew that Delphinus’s actual portfolio contained a substantial amount of RMBS that were subject to the downward ratings, and that Delphinus, as constructed, could not meet its rating targets under these tougher standards. To enable Delphinus to close anyway, the Mizuho employees e-mailed multiple alternative portfolios to S&P that contained dummy assets that were superior in credit quality to the assets that had been actually acquired for the CDO. Once the necessary ratings were secured by the use of dummy assets, the Delphinus transaction closed by mid-afternoon on July 19 and securities were sold based upon these higher ratings. Investors were thus misled to believe that the Delphinus notes had achieved the advertised ratings that the actual closing portfolio would not support.
According to the SEC’s complaint, in connection with Delphinus’s subsequent request for a required rating confirmation from S&P, Mizuho employees provided and arranged for others to provide further inaccurate information about the composition of Delphinus’s assets. Primarily, they misrepresented that Delphinus’s effective date was August 6 rather than July 19. S&P then provided Delphinus with the ratings confirmation using the improper effective date of August 6.
Everyone charged by the SEC agreed to settlements without admitting or denying the charges. Mizuho consented to the entry of a final judgment requiring payment of $10 million in disgorgement, $2.5 million in prejudgment interest, and a $115 million penalty. The settlement, which requires court approval, also permanently enjoins Mizuho from violating Sections 17(a)(2) and (3) of the Securities Act.
In the related administrative proceedings against Rekeda, Capdepon, and Snorteland, the SEC found that Rekeda violated Sections 17(a)(2) and (3) of the Securities Act, and Capdepon and Snorteland violated Section 17(a). Rekeda and Capdepon each agreed to pay a $125,000 penalty while the decision on whether there will be a penalty for Snorteland will be decided at a later date. Rekeda agreed to be suspended from the securities industry for 12 months, Capdepon and Snorteland each agreed to be barred from the securities industry for one year, and all three agreed to cease and desist from further violations of the respective sections of the Securities Act they violated.
The SEC instituted settled administrative proceedings against DAA and Wei based on their post-closing conduct. DAA consented to the entry of an order requiring the firm to pay disgorgement of $2,228,372, prejudgment interest of $357,776, and a penalty of $2,228,372. Wei consented to the entry of an order requiring him to pay a $50,000 penalty and suspending him from associating with any investment adviser for six months. Both DAA and Wei consented to cease and desist from violating Section 17(a)(2) and (3) of the Securities Act and Section 206(2) of the Advisers Act.
The SEC investigation into the Delphinus transaction, which is continuing, was conducted by the Enforcement Division’s Structured and New Products Unit led by Kenneth Lench and Reid Muoio. The investigative attorneys were Robert Leidenheimer, Lawrence Renbaum, and James Murtha, and the trial attorneys were Jan Folena, Suzanne Romajas, and Alan Lieberman.
Firm to Pay $127.5 Million to Settle ChargesWashington, D.C., July 18, 2012
— The Securities and Exchange Commission today charged the U.S. investment banking subsidiary of Japan-based Mizuho Financial Group and three former employees with misleading investors in a collateralized debt obligation (CDO) by using "dummy assets" to inflate the deal’s credit ratings. The SEC also charged the firm that served as the deal’s collateral manager and the person who was its portfolio manager.
According to the SEC’s complaint against Mizuho Securities USA Inc., the firm made approximately $10 million in structuring and marketing fees in the deal. Mizuho agreed to pay $127.5 million to settle the SEC’s charges, and the others charged also agreed to settle the SEC’s actions against them.
The SEC alleges that Mizuho structured and marketed Delphinus CDO 2007-1, a CDO that was backed by subprime bonds at a time when the housing market was showing signs of severe distress. The deal was contingent upon Mizuho obtaining credit ratings it used to market the notes to investors. When its employees realized that Delphinus could not meet one rating agency’s newly announced criteria intended to protect CDO investors from the uncertainty of ratings downgrades, they submitted to the rating firm a portfolio containing millions of dollars in dummy assets that inaccurately reflected the collateral held by Delphinus. Once the firm rated the inaccurate portfolio, Mizuho closed the transaction and sold the notes to investors using the misleading ratings. Delphinus defaulted in 2008 and eventually was liquidated in 2010. Mizuho sustained substantial losses from Delphinus.
"This case demonstrates once again that bankers and market participants who embrace a ‘get the deal done at all costs’ strategy will be identified, charged, and punished," said Robert Khuzami, Director of the SEC’s Division of Enforcement. "This is a constant theme throughout the many SEC enforcement actions arising out of the financial crisis, and is one that everyone involved in securities transactions and our financial markets would be well-advised to respect."
Kenneth Lench, Chief of the SEC’s Enforcement Division’s Structured and New Products Unit, added, "Mizuho and its employees undermined the integrity of the rating process by furnishing inaccurate information about the Delphinus portfolio. Investors expect and are entitled to receive legitimate ratings in order to help them assess their investments."
According to the SEC’s settled administrative proceedings against the three former Mizuho employees responsible for the Delphinus deal, Alexander Rekeda headed the group that structured the $1.6 billion CDO, Xavier Capdepon modeled the transaction for the rating agencies, and Gwen Snorteland was the transaction manager responsible for structuring and closing Delphinus. Delaware Asset Advisers (DAA) served as Delphinus’s collateral manager and the DAA portfolio manager was Wei (Alex) Wei.
According to the SEC’s complaint against Mizuho filed in federal court in Manhattan, all of the collateral assets for Delphinus had been purchased by July 17, 2007, and the transaction was scheduled to close on July 19. However, around noon on July 18, Standard & Poor’s (S&P) issued a press release announcing changes to its CDO rating criteria requiring certain categories of subprime residential mortgage-backed securities (RMBS) to be adjusted downward for purposes of calculating their default probability. The Mizuho employees knew that Delphinus’s actual portfolio contained a substantial amount of RMBS that were subject to the downward ratings, and that Delphinus, as constructed, could not meet its rating targets under these tougher standards. To enable Delphinus to close anyway, the Mizuho employees e-mailed multiple alternative portfolios to S&P that contained dummy assets that were superior in credit quality to the assets that had been actually acquired for the CDO. Once the necessary ratings were secured by the use of dummy assets, the Delphinus transaction closed by mid-afternoon on July 19 and securities were sold based upon these higher ratings. Investors were thus misled to believe that the Delphinus notes had achieved the advertised ratings that the actual closing portfolio would not support.
According to the SEC’s complaint, in connection with Delphinus’s subsequent request for a required rating confirmation from S&P, Mizuho employees provided and arranged for others to provide further inaccurate information about the composition of Delphinus’s assets. Primarily, they misrepresented that Delphinus’s effective date was August 6 rather than July 19. S&P then provided Delphinus with the ratings confirmation using the improper effective date of August 6.
Everyone charged by the SEC agreed to settlements without admitting or denying the charges. Mizuho consented to the entry of a final judgment requiring payment of $10 million in disgorgement, $2.5 million in prejudgment interest, and a $115 million penalty. The settlement, which requires court approval, also permanently enjoins Mizuho from violating Sections 17(a)(2) and (3) of the Securities Act.
In the related administrative proceedings against Rekeda, Capdepon, and Snorteland, the SEC found that Rekeda violated Sections 17(a)(2) and (3) of the Securities Act, and Capdepon and Snorteland violated Section 17(a). Rekeda and Capdepon each agreed to pay a $125,000 penalty while the decision on whether there will be a penalty for Snorteland will be decided at a later date. Rekeda agreed to be suspended from the securities industry for 12 months, Capdepon and Snorteland each agreed to be barred from the securities industry for one year, and all three agreed to cease and desist from further violations of the respective sections of the Securities Act they violated.
The SEC instituted settled administrative proceedings against DAA and Wei based on their post-closing conduct. DAA consented to the entry of an order requiring the firm to pay disgorgement of $2,228,372, prejudgment interest of $357,776, and a penalty of $2,228,372. Wei consented to the entry of an order requiring him to pay a $50,000 penalty and suspending him from associating with any investment adviser for six months. Both DAA and Wei consented to cease and desist from violating Section 17(a)(2) and (3) of the Securities Act and Section 206(2) of the Advisers Act.
The SEC investigation into the Delphinus transaction, which is continuing, was conducted by the Enforcement Division’s Structured and New Products Unit led by Kenneth Lench and Reid Muoio. The investigative attorneys were Robert Leidenheimer, Lawrence Renbaum, and James Murtha, and the trial attorneys were Jan Folena, Suzanne Romajas, and Alan Lieberman.
Tuesday, July 31, 2012
CFTC SETTLES "BUCKETED ORDRS" CHARGES AGAINST TRADERS
FROM: COMMODITY FUTURES TRADING COMMISSION
CFTC Suspends Registrations of Chicago Mercantile Exchange Traders Christopher Foufas, William Kerstein, and Maksim Baron for Unlawful S&P 500 Trading
Washington DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued orders filing and settling charges against Christopher T. Foufas and Maksim Baron of Chicago, Ill., and William K. Kerstein of Riverwoods, Ill., all registered floor brokers in the Chicago Mercantile Exchange’s (CME) Standard & Poor’s 500 Stock Price Index futures contract (S&P 500) trading pit.
The CFTC order entered against Foufas finds that he indirectly bucketed his customers’ orders on at least 11 occasions between May 2009 and October 2010. On each of these occasions, Foufas, while filling customers’ orders in the S&P 500 trading pit, indirectly took the opposite side of his customers’ orders for his own account through noncompetitive round-turn trades with accommodating traders, according to the order. This practice permitted Foufas to establish a position for his own account without competitive execution, according to the order.
The CFTC orders entered against Kerstein and Baron find that Kerstein and Baron accommodated another broker in taking the opposite side of his customer orders into his own account on seven and four of these occasions, respectively.
The CFTC orders require Foufas, Kerstein, and Baron to pay civil monetary penalties of $75,000, $50,000, and $20,000, respectively. The orders also suspend Foufas’ and Baron’s floor registrations for two months and Kerstein’s floor registration for one month, removing them from the trading floor. The order also prohibits Foufas from filling or executing orders for customers for 18 months. The orders require all three traders to cease and desist from further violations of the Commodity Exchange Act and CFTC regulations, as charged.
The CFTC’s Enforcement Division thanks the staff of the CME’s Market Regulation Department for their assistance.
CFTC Division of Enforcement staff members responsible for this case are Jon J. Kramer, Mary Beth Spear, Ava M. Gould, Elizabeth M. Streit, Scott R. Williamson, Rosemary Hollinger, and Richard B. Wagner. Meghan M. Wise of the CFTC’s Division of Market Oversight also contributed to this matter.
CFTC Suspends Registrations of Chicago Mercantile Exchange Traders Christopher Foufas, William Kerstein, and Maksim Baron for Unlawful S&P 500 Trading
Washington DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued orders filing and settling charges against Christopher T. Foufas and Maksim Baron of Chicago, Ill., and William K. Kerstein of Riverwoods, Ill., all registered floor brokers in the Chicago Mercantile Exchange’s (CME) Standard & Poor’s 500 Stock Price Index futures contract (S&P 500) trading pit.
The CFTC order entered against Foufas finds that he indirectly bucketed his customers’ orders on at least 11 occasions between May 2009 and October 2010. On each of these occasions, Foufas, while filling customers’ orders in the S&P 500 trading pit, indirectly took the opposite side of his customers’ orders for his own account through noncompetitive round-turn trades with accommodating traders, according to the order. This practice permitted Foufas to establish a position for his own account without competitive execution, according to the order.
The CFTC orders entered against Kerstein and Baron find that Kerstein and Baron accommodated another broker in taking the opposite side of his customer orders into his own account on seven and four of these occasions, respectively.
The CFTC orders require Foufas, Kerstein, and Baron to pay civil monetary penalties of $75,000, $50,000, and $20,000, respectively. The orders also suspend Foufas’ and Baron’s floor registrations for two months and Kerstein’s floor registration for one month, removing them from the trading floor. The order also prohibits Foufas from filling or executing orders for customers for 18 months. The orders require all three traders to cease and desist from further violations of the Commodity Exchange Act and CFTC regulations, as charged.
The CFTC’s Enforcement Division thanks the staff of the CME’s Market Regulation Department for their assistance.
CFTC Division of Enforcement staff members responsible for this case are Jon J. Kramer, Mary Beth Spear, Ava M. Gould, Elizabeth M. Streit, Scott R. Williamson, Rosemary Hollinger, and Richard B. Wagner. Meghan M. Wise of the CFTC’s Division of Market Oversight also contributed to this matter.
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